Author Topic: Flat Tax  (Read 53994 times)

Undecided

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Re: Flat Tax
« Reply #50 on: July 02, 2014, 04:12:16 PM »
You are correct in saying that nobody likes paying taxes. However, it's apparent that liberals love other people to pay taxes. ..

Please stop. That's not even remotely true. The biggest difference between liberals and conservatives today seems to be that conservatives don't think the government does anything good or worthwhile with taxpayer money. Liberals believe that government can be a force for good and there are some things we should collectively fund.

Such is the rhetoric.

But If you think this is true, just look at government spending under democratic vs republican presidents.

http://economistsview.typepad.com/.a/6a00d83451b33869e2017ee86db24e970d-800wi

Conservatives talk about hating big government, and then they grow it.

Or, mainstream Republicans aren't meaningfully "conservatives" (although I'll give them that many are at least traditionally conservative on some factors) and mainstream Democrats are not meaningfully "liberals."

Huffy2k

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Re: Flat Tax
« Reply #51 on: July 02, 2014, 05:55:10 PM »
Clinton worked with a republican congress.  Your argument completely falls apart with the Obama presidency though.

tomsang

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Re: Flat Tax
« Reply #52 on: July 02, 2014, 06:45:36 PM »
A debate about funding a government should be an economic and mathematical debate and not a philosophic one.

I strongly disagree.  You have to come up with a philosophy of who and at what level people should contribute to the expenses of running our country before you get into the mathematics.  The math is easy once you figure out the philosophical questions.  I am not even sure what a mathematical debate is when dealing with simple addition, subtraction, multiplication, and division.  1+1=3?       

Sonorous Epithet

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Re: Flat Tax
« Reply #53 on: July 02, 2014, 08:50:21 PM »
I am not even sure what a mathematical debate is when dealing with simple addition, subtraction, multiplication, and division.  1+1=3?     

0.9999 repeating is equal to 1! WAKE UP SHEEPLE!

milesdividendmd

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Re: Flat Tax
« Reply #54 on: July 02, 2014, 08:59:44 PM »

Clinton worked with a republican congress.  Your argument completely falls apart with the Obama presidency though.

You might want to look at the actual data.

Your assumptions are incorrect.





Insanity

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Re: Flat Tax
« Reply #55 on: July 02, 2014, 09:20:12 PM »
In contrast the question you should ask yourself when it comes to paying taxes, is "how can I legally pay the least amount of taxes possible given our current system."

You can say this is hypocrisy, but in my view it is just being a smart voter and a smart personal economist. 

And I seem to be in good company. After all warren buffet agrees with me.

http://www.milesdividendmd.com/warren-and-me/

Depends on how you look at it.  Wasn't it Henry Ford who bucked the trend and paid his works more in order to "make sure they could afford the goods and services being produced"?

By that logic, paying taxes is important to enable the government to provide the necessary services for society as a whole.  Something of which you are apart of.  Services that include ensuring communications channels within the country, roadways, rails, managing airlines, health care services, safe food and drugs.  Notice I said ensuring these things, not providing these services.  There is a distinct difference so let's not get into the debate of who is better at doing those services.

Paying taxes is not evil, as some would like you to believe.  Managing those taxes inefficiently most definitely is.

milesdividendmd

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Re: Flat Tax
« Reply #56 on: July 02, 2014, 09:44:37 PM »

In contrast the question you should ask yourself when it comes to paying taxes, is "how can I legally pay the least amount of taxes possible given our current system."

You can say this is hypocrisy, but in my view it is just being a smart voter and a smart personal economist. 

And I seem to be in good company. After all warren buffet agrees with me.

http://www.milesdividendmd.com/warren-and-me/

Depends on how you look at it.  Wasn't it Henry Ford who bucked the trend and paid his works more in order to "make sure they could afford the goods and services being produced"?

By that logic, paying taxes is important to enable the government to provide the necessary services for society as a whole.  Something of which you are apart of.  Services that include ensuring communications channels within the country, roadways, rails, managing airlines, health care services, safe food and drugs.  Notice I said ensuring these things, not providing these services.  There is a distinct difference so let's not get into the debate of who is better at doing those services.

Paying taxes is not evil, as some would like you to believe.  Managing those taxes inefficiently most definitely is.

I don't necessarily disagree with you. Which is why I vote progressive.

My ideal tax code would be simple, clean, and progressive. There would be no deductions.

I would love nothing more than to know that I was paying my fair share, and that those richer and poorer than we're also paying their fair share, whether they liked it or not.

But as long as we have this labyrinthine tax code, I'll be damned if I will not take advantage of every loophole that I legally can. To do otherwise would be foolish. It would unnecessarily put off my own financial independence.

Put another way, why should regressives have all the fun?

(It is also worth noting that my effective tax rate is well north of 20% unlike, say, Mitt Romney who stretched to pay as much as possible while running for president and only managed to pay a 13% effective tax rate.)



Huffy2k

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Re: Flat Tax
« Reply #57 on: July 03, 2014, 08:52:00 AM »
I would love nothing more than to know that I was paying my fair share, and that those richer and poorer than we're also paying their fair share, whether they liked it or not.

But as long as we have this labyrinthine tax code, I'll be damned if I will not take advantage of every loophole that I legally can. To do otherwise would be foolish. It would unnecessarily put off my own financial independence.

  So, you'd like to pay more in taxes but you fight and claw for every loophole you can find? 



randymarsh

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Re: Flat Tax
« Reply #58 on: July 03, 2014, 09:16:47 AM »
I would love nothing more than to know that I was paying my fair share, and that those richer and poorer than we're also paying their fair share, whether they liked it or not.

But as long as we have this labyrinthine tax code, I'll be damned if I will not take advantage of every loophole that I legally can. To do otherwise would be foolish. It would unnecessarily put off my own financial independence.

  So, you'd like to pay more in taxes but you fight and claw for every loophole you can find? 



I think they're saying they wouldn't necessarily be opposed to to higher taxes if everyone was hit equally. But I don't really get what people mean when they talk about "loopholes". Is the 401k a loophole? Deprecation of business assets? Hybrid car tax credit? There are specific ways to reduce your tax liability and none of it is a secret.

matchewed

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Re: Flat Tax
« Reply #59 on: July 03, 2014, 10:02:10 AM »
Eh it's the change in language more than anything. People use the term loophole now to make it seem semi-illegal.

That being said, paying your fair share can easily equate to utilizing all the rules to your advantage. No where did miles say anything regarding paying more.

milesdividendmd

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Re: Flat Tax
« Reply #60 on: July 03, 2014, 10:56:25 AM »

I would love nothing more than to know that I was paying my fair share, and that those richer and poorer than we're also paying their fair share, whether they liked it or not.

But as long as we have this labyrinthine tax code, I'll be damned if I will not take advantage of every loophole that I legally can. To do otherwise would be foolish. It would unnecessarily put off my own financial independence.

  So, you'd like to pay more in taxes but you fight and claw for every loophole you can find? 



I think they're saying they wouldn't necessarily be opposed to to higher taxes if everyone was hit equally. But I don't really get what people mean when they talk about "loopholes". Is the 401k a loophole? Deprecation of business assets? Hybrid car tax credit? There are specific ways to reduce your tax liability and none of it is a secret.

I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.

But a more personal definition might be any action that a person undertakes entirely, or mostly to avoid taxes.

Here are some tax loopholes that I have willingly jumped through:

A backdoor Roth IRA.
Maxing out a health savings account and not using it to pay for current medical expenses.
Not payng down my mortgage quicker.
Tax loss harvesting.

Each of these are examples of actions that I have undertaken, that I wouldn't have undertaken if the tax code were simpler.



Sonorous Epithet

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Re: Flat Tax
« Reply #61 on: July 03, 2014, 02:56:49 PM »
I think one good definition of a loophole would be any tax deduction.

Loophole: (n). A tax credit or deduction taken by someone other than you.
« Last Edit: July 03, 2014, 02:59:04 PM by Sonorous Epithet »

grantmeaname

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Re: Flat Tax
« Reply #62 on: July 03, 2014, 03:43:40 PM »
I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

milesdividendmd

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Flat Tax
« Reply #63 on: July 03, 2014, 05:16:29 PM »
I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

Fair point. I'll take your semantic criticism of my definition of "loophole."  Feel free to substitute "tax expenditure" for my use of loophole in my past and future posts.

The essential point I was making was not the definition of the word "loophole," per se, it the effect if such "loopholes" on the tax code.

They are what make our tax code complex (not progressivity). And they influence taxpayers to act in inefficient ways.

I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?
« Last Edit: July 03, 2014, 05:37:19 PM by milesdividendmd »

matchewed

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Re: Flat Tax
« Reply #64 on: July 03, 2014, 05:22:44 PM »
I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

Fair point. I'll take your semantic criticism of my definition of "loophole."  Feel free to substitute "tax expenditure" for my use if loophole in my past and future posts.

The essential point I was making was not the definition of the word "loophole," per se, it the effect if such "loopholes" on the tax code.

They are what make our tax code complex (not progressivity). And they influence taxpayers to act in inefficient ways.

I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?

Consider that for a second or two. The backdoor Roth is designed as a way for people contribute to a Roth when they are ineligible. Particularly high income people. Now only if we knew some high income people who would like a function like the backdoor Roth.

Senate & House salary $174,000.

Wonder why someone who makes that much would want a way in considering the current caps?


milesdividendmd

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Re: Flat Tax
« Reply #65 on: July 03, 2014, 05:36:29 PM »

I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

Fair point. I'll take your semantic criticism of my definition of "loophole."  Feel free to substitute "tax expenditure" for my use if loophole in my past and future posts.

The essential point I was making was not the definition of the word "loophole," per se, it the effect if such "loopholes" on the tax code.

They are what make our tax code complex (not progressivity). And they influence taxpayers to act in inefficient ways.

I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?

Consider that for a second or two. The backdoor Roth is designed as a way for people contribute to a Roth when they are ineligible. Particularly high income people. Now only if we knew some high income people who would like a function like the backdoor Roth.

Senate & House salary $174,000.

Wonder why someone who makes that much would want a way in considering the current caps?

As a fellow cynic, your question is an attractive one.

Let me answer it with another question.

If our legislators are concerned only with their own pocketbooks,Why pass a law placing a cap on Roth contributions in the first place?



matchewed

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Re: Flat Tax
« Reply #66 on: July 03, 2014, 05:53:46 PM »

I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

Fair point. I'll take your semantic criticism of my definition of "loophole."  Feel free to substitute "tax expenditure" for my use if loophole in my past and future posts.

The essential point I was making was not the definition of the word "loophole," per se, it the effect if such "loopholes" on the tax code.

They are what make our tax code complex (not progressivity). And they influence taxpayers to act in inefficient ways.

I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?

Consider that for a second or two. The backdoor Roth is designed as a way for people contribute to a Roth when they are ineligible. Particularly high income people. Now only if we knew some high income people who would like a function like the backdoor Roth.

Senate & House salary $174,000.

Wonder why someone who makes that much would want a way in considering the current caps?

As a fellow cynic, your question is an attractive one.

Let me answer it with another question.

If our legislators are concerned only with their own pocketbooks,Why pass a law placing a cap on Roth contributions in the first place?

Best of both worlds. I can have my cake (backdoor Roth) and eat it too (dividend taxes and short/long term capital gains taxes from middle income America).

*Edit to add who the taxes are from*
« Last Edit: July 03, 2014, 05:57:05 PM by matchewed »

milesdividendmd

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Flat Tax
« Reply #67 on: July 04, 2014, 11:46:15 AM »

I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

Fair point. I'll take your semantic criticism of my definition of "loophole."  Feel free to substitute "tax expenditure" for my use if loophole in my past and future posts.

The essential point I was making was not the definition of the word "loophole," per se, it the effect if such "loopholes" on the tax code.

They are what make our tax code complex (not progressivity). And they influence taxpayers to act in inefficient ways.

I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?

Consider that for a second or two. The backdoor Roth is designed as a way for people contribute to a Roth when they are ineligible. Particularly high income people. Now only if we knew some high income people who would like a function like the backdoor Roth.

Senate & House salary $174,000.

Wonder why someone who makes that much would want a way in considering the current caps?

As a fellow cynic, your question is an attractive one.

Let me answer it with another question.

If our legislators are concerned only with their own pocketbooks,Why pass a law placing a cap on Roth contributions in the first place?

Best of both worlds. I can have my cake (backdoor Roth) and eat it too (dividend taxes and short/long term capital gains taxes from middle income America).

*Edit to add who the taxes are from*

Nice (and humorous) try, but not really plausible.  The cap predates the conversion rule.

matchewed

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Re: Flat Tax
« Reply #68 on: July 04, 2014, 12:05:13 PM »

I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

Fair point. I'll take your semantic criticism of my definition of "loophole."  Feel free to substitute "tax expenditure" for my use if loophole in my past and future posts.

The essential point I was making was not the definition of the word "loophole," per se, it the effect if such "loopholes" on the tax code.

They are what make our tax code complex (not progressivity). And they influence taxpayers to act in inefficient ways.

I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?

Consider that for a second or two. The backdoor Roth is designed as a way for people contribute to a Roth when they are ineligible. Particularly high income people. Now only if we knew some high income people who would like a function like the backdoor Roth.

Senate & House salary $174,000.

Wonder why someone who makes that much would want a way in considering the current caps?

As a fellow cynic, your question is an attractive one.

Let me answer it with another question.

If our legislators are concerned only with their own pocketbooks,Why pass a law placing a cap on Roth contributions in the first place?

Best of both worlds. I can have my cake (backdoor Roth) and eat it too (dividend taxes and short/long term capital gains taxes from middle income America).

*Edit to add who the taxes are from*

Nice (and humorous) try, but not really plausible.  The cap predates the conversion rule.

Why does that make it implausible?

We institute this retirement investment vehicle with a cap so we can maintain some measure of investment taxation income. But then see how useful it would be for ourselves and our rich friends to have tax free investment gains.

milesdividendmd

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Re: Flat Tax
« Reply #69 on: July 04, 2014, 12:10:48 PM »


I think one good definition of a loophole would be any tax deduction. In other words anything that adds complexity to the tax code.
Loophole is an absolutely terrible word for what you're trying to get at. And, to be clear, it's not a terminology nitpick - if you think that tax deductions are loopholes, the entire mental model by which you approach taxation is just fundamentally wrong.

From wikipedia: "A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system." Substitute any other definition you like, but you'll find that the loophole user going against the intent of the rulemaker is the fundamental ingredient to the definition.

Congress says "We want more people to own homes. If you own a home and pay a mortgage, we will decrease your taxes as an incentive for homeownership." Then Bob Buyer says "I'm buying a home, partially because I get this great tax benefit."

That's exactly not at all what a loophole is! Bob Buyer taking the mortgage interest deduction isn't an unintended consequence of the mortgage interest deduction being on the books, it's the whole reason the law was passed! Congress created the mortgage interest deduction specifically because it wanted Bob Buyer to go out and get a house. It created the HSA specifically because it wanted more savings put aside for large medical expenses! It's not a bug, it's a feature!

A much more productive way to think about tax deductions, exclusions, and credits is as "tax expenditures" (decent overview here). The legislature decides for whatever reason that it wants to support a policy, and then it changes tax law or government spending in order to support that policy. There's no loopholes or circumvention of intent about it - the provisions exist so that you'll use them!

Fair point. I'll take your semantic criticism of my definition of "loophole."  Feel free to substitute "tax expenditure" for my use if loophole in my past and future posts.

The essential point I was making was not the definition of the word "loophole," per se, it the effect if such "loopholes" on the tax code.

They are what make our tax code complex (not progressivity). And they influence taxpayers to act in inefficient ways.

I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?

Consider that for a second or two. The backdoor Roth is designed as a way for people contribute to a Roth when they are ineligible. Particularly high income people. Now only if we knew some high income people who would like a function like the backdoor Roth.

Senate & House salary $174,000.

Wonder why someone who makes that much would want a way in considering the current caps?

As a fellow cynic, your question is an attractive one.

Let me answer it with another question.

If our legislators are concerned only with their own pocketbooks,Why pass a law placing a cap on Roth contributions in the first place?

Best of both worlds. I can have my cake (backdoor Roth) and eat it too (dividend taxes and short/long term capital gains taxes from middle income America).

*Edit to add who the taxes are from*

Nice (and humorous) try, but not really plausible.  The cap predates the conversion rule.

Why does that make it implausible?

We institute this retirement investment vehicle with a cap so we can maintain some measure of investment taxation income. But then see how useful it would be for ourselves and our rich friends to have tax free investment gains.

It requires a coordination of effort over multiple years and different congresses.

If all congress wanted was to minimize their own taxes they would never have instituted a cap in the first place. And if they wanted a sneaky backdoor for themselves, why wait to include it in the law?  Why not make it an exception for federal employees only?



Travis

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Re: Flat Tax
« Reply #70 on: July 04, 2014, 12:45:35 PM »
Miles,

The conversation has shifted, but I still want to answer the questions you posed to me:

Quote
if we moved to a flat 15% tax tomorrow, what would prevent special interests on day two from carving out new tax credits, expenditures and giveaways for those with the most resources?

answer: Nothing.  Which is why I don't advocate a flat tax, but a consumption tax.  There's no need for special interest tax credits if there are no taxes.

Quote
And If you tax people based on consumption, then poor consume almost 100% of their income out of necessity, while the ultrarich consume less than 1% of income despite lavish spending habits. You've accomplished nothing more than a dramatic shift towards regressive taxation.

The percentages you offer are way off the mark, especially if you read on this forum how much or how little a person can spend if they try.  And to answer your implied question, I specified in my post prior that the poor would receive a rebate equal to the cost of necessities so any spending after that is entirely up to them.  That's the point of a consumption tax.  If you want to live a Mustachian lifestyle you can pretty much avoid the Fairtax taxation system.  We don't fault people on this forum for being frugal. Why should a change in the tax code change that?  I think it is fair for everyone to receive the money they earn and then tax them on what they voluntarily choose to spend money on. As a "poor" person I could buy a used car and pay no Fairtax on it, but the "rich" person could buy a new $100,000 car and pay the 23% tax.  The Fairtax analysis projects the cost of all finished goods would drop by at least 23% since the business no longer pays income or payroll taxes (which is why they chose that tax rate to be revenue neutral to start off).  The business would have more money to invest in itself, improve wages, or expand and hire more employees.  If billions of dollars hiding overseas came back to the US due to no more income taxes, the cost of goods could fall even more with investment.  Instead we have corporations with whole departments devoted to making them pay as little income tax as possible.  The truth is no business actually pays taxes, their consumers pay it for them in the form of higher prices.

When Congress wants to raise $X billion more in tax revenue with a new law, they actually raise $X minus a growing percentage due to efforts to avoid the increase.  Everyone gets stuck with making up the difference somewhere or the national debt goes up because Congress couldn't squeeze the money they didn't get from somewhere else.  Progressive or regressive, the system is increasingly inefficient. 

[url]http://www.fairtax.org/PDF/WhatTheFederalTaxSystemIsCostingYou.pdf[\url]

Quote
Deficit spending aside, taxation is a zero-sum game.

How so?  The money supply is not fixed.  Our fractional-reserve system guarantees more money is created every year.  The Fair Tax system encourages investment from everywhere and the size of the tax base increases due to every human who spends money in the country becoming a taxpayer.

Travis

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Re: Flat Tax
« Reply #71 on: July 04, 2014, 02:46:02 PM »
A debate about funding a government should be an economic and mathematical debate and not a philosophic one.

I strongly disagree.  You have to come up with a philosophy of who and at what level people should contribute to the expenses of running our country before you get into the mathematics.  The math is easy once you figure out the philosophical questions.  I am not even sure what a mathematical debate is when dealing with simple addition, subtraction, multiplication, and division.  1+1=3?     

When I say math vs philosophy, I mean that the first question should be "what's the best way to fund our needs before it negatively affects economic growth?"  When you start off with "who should pay?" you can quickly get into a class warfare argument rather than a meaningful discussion about what's best for the general economy.  My bias towards the "fair share" phrase stems from this issue.  I've had many tax debates in the past where one or more parties quickly devolved into "I don't know how much the rich pay but it isn't enough because I just don't like them."  Being more successful than your neighbor is a crime to some people (even if doesn't hurt them) and it can block the entire discussion.  To me when you argue for taxing the rich with no way to measure how much is enough (and you can't even agree on who is rich) I think you lose a critical academic part of the discussion.

I'm from California and they have a history of high business and personal income taxes and a deadlocked legislature that can't get away from doing things the way they've always been done.  The state has put itself countless billions in the hole and in what seems like a death spiral they want "the rich" to pay for the problem, but instead those people are all moving to Texas.  The number of $250k/year households in California has shrunk by a third since 2007 and it seems like all the state can come up with is keep taxing the ones still around.  Congress isn't much different.  They spend hundreds of hours of useless debate making large changes to our tax code which results in miniscule changes to our tax revenue.  Instead of looking at the whole system they just shout "rich vs poor" until after elections are over.

grantmeaname

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Re: Flat Tax
« Reply #72 on: July 04, 2014, 02:48:23 PM »
But can't you see that "who should pay?" and "what kind of tax do we institute?" are two sides of the same coin?

Travis

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Re: Flat Tax
« Reply #73 on: July 04, 2014, 03:18:52 PM »
I can't deny they're closely related and may likely lead to the same discussion, but I think it makes a difference in where your mind is when you start the debate.  In an economic discussion (and just finishing a grad school international economics class I've had plenty) I do my best to keep emotions out of it.  In the tax debate on this forum we've heard "the rich aren't paying a high enough percentage of their income even if they're still paying nearly all the taxes" which is when I ask someone to tell me when it's high enough, and why is their tax rate so important to you.  The numbers from the GAO tell us the more we tax expecting higher revenue, the lower percentage we actually take in. The system isn't working.  We've built a system that struggles to trim the margins and just makes everyone pissed off at each other.  In our tax system 1+1=1.75 and we're too busy trying to stick it to our neighbor to notice.
 
Here on MMM we focus almost entirely on spending as it pertains to personal lifestyle choices.  That never seems to come up in tax rate discussions.  Focusing on spending takes a lot of the emotion out of financial discussions on this blog.  When someone says they don't make enough to support their lifestyle we call them complainypants and tell them to get a less expensive car.  We never accept them whining that their neighbor just has it better off than them.  In the Fairtax concept tax revenue is based on your personal choices.  It's premise is "how to generate the same tax revenue efficiently that doesn't sap the economy and negates the motivation to avoid paying."  Regardless of their solution I like that approach to a problem.  Approaching the problem from "how much should each income bracket pay" assumes there's only one kind of tax system and injects too many undefined variables into the equation. We end up with not knowing who is rich, who is poor, how much is fair, how little is fair, and at what point does it all become counterproductive.

fixer-upper

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Re: Flat Tax
« Reply #74 on: July 04, 2014, 03:51:00 PM »
Taxes, like fines, discourage behaviors.  With that being said, lets explore the options:

Income taxes necessitate higher wages, and discourage job growth.  This encourages less domestic production, and more imports.
Sales taxes wouldn't put the breaks on job growth, but would discourage spending, necessitating more exports and fewer imports.

If we MUST have high taxes, I'm in favor of the latter.  Otherwise, I'd be in favor of severe cuts to government revenue in conjunction with inflating away most of the national debt.
« Last Edit: July 04, 2014, 03:53:30 PM by fixer-upper »

anisotropy

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Re: Flat Tax
« Reply #75 on: July 04, 2014, 11:17:19 PM »
I like how people just ignored hard numbers provided by EricP, Knaak and Huffy2k. For your convenience I will quote EricP's post with the numbers. The top 50% or even top 1% are paying more than their share (pay % > income %).

Romney was right when he said "47% who believe they are the victims" (coincidentally roughly 47% of the people don't pay taxes). Funny how everyone still has the same "rights" even the responsibilities are vastly different.

Sure maybe the poor can not afford to pay their fair share, but they can surely work their fair share. Ya that's right, I just suggested "forced and unpaid" labour for the less fortunate folks. Oh the horror! But hey, maybe things will be made in 'Murica again.

For 'Murica !!!!

For those looking for an answer from Huffy regarding how much percentage of income the top X% have, I was able to find what was likely his source document here:  http://www.financialsamurai.com/how-much-money-do-the-top-income-earners-make-percent/

So:  Top 1% Pays 38% with 20% of Total Income
       Top 5% Pays 59% with 35% of Total Income
       Top 10% Pays 70% with 46% of Total Income
       Top 25% Pays 86% with 67% of Total Income
       Top 50% Pays 97% with 87% of Total Income
       Bottom 50% Pays 3% with 13% of Total Income

grantmeaname

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Re: Flat Tax
« Reply #76 on: July 05, 2014, 01:48:37 AM »
I like how people just ignored hard numbers provided by EricP, Knaak and Huffy2k. For your convenience I will quote EricP's post with the numbers. The top 50% or even top 1% are paying more than their share (pay % > income %).
'Tax % > Income %' is a fact. "It would be fair if tax % equalled income %" is your opinion, and it's one that's emphatically not shared by everyone in the discussion. Other notions of fairness mentioned in these discussions (though possibly not in the specific thread, since we seem to start a new thread about the same topic every three weeks) include taxing income to minimize the overall hit to marginal utility, and taxing the well-off in proportion to the positive externalities the government provides them with. But if you're going to wander in and say "it's a fact that our system is unfairly harsh to the rich and I have a ratio that proves it" you don't really have much of a argument.

And you're using numbers that support your point rather than numbers that fairly render the economics of US taxation. Serious arguments include FICA and other federal taxes, which are far more regressive than our barely-progressive income tax system. Including all of these is more intellectually honest.
So what percentage does the top 20% pay with their ~two-thirds of the income?

About two thirds. Suddenly we don't really have progressive taxation at all!

marty998

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Re: Flat Tax
« Reply #77 on: July 05, 2014, 05:36:08 AM »

Sure maybe the poor can not afford to pay their fair share, but they can surely work their fair share. Ya that's right, I just suggested "forced and unpaid" labour for the less fortunate folks. Oh the horror! But hey, maybe things will be made in 'Murica again.

For 'Murica !!!!


We have that already. It's called work for the dole. Jury is out whether it works - both the for and against sides claim victory over and over again, but one things for sure, it keeps the taxpaying voters happy come election time.

matchewed

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Re: Flat Tax
« Reply #78 on: July 05, 2014, 06:36:35 AM »
I also wonder if you are suggesting that a backdoor Roth is what congress intended when they placed no income limit on IRA conversions?  And if not, does this maneuver not meet your definition of a loophole?
Consider that for a second or two. The backdoor Roth is designed as a way for people contribute to a Roth when they are ineligible. Particularly high income people. Now only if we knew some high income people who would like a function like the backdoor Roth.

Senate & House salary $174,000.

Wonder why someone who makes that much would want a way in considering the current caps?
As a fellow cynic, your question is an attractive one.

Let me answer it with another question.

If our legislators are concerned only with their own pocketbooks,Why pass a law placing a cap on Roth contributions in the first place?
Best of both worlds. I can have my cake (backdoor Roth) and eat it too (dividend taxes and short/long term capital gains taxes from middle income America).

*Edit to add who the taxes are from*
Nice (and humorous) try, but not really plausible.  The cap predates the conversion rule.
Why does that make it implausible?

We institute this retirement investment vehicle with a cap so we can maintain some measure of investment taxation income. But then see how useful it would be for ourselves and our rich friends to have tax free investment gains.
It requires a coordination of effort over multiple years and different congresses.

If all congress wanted was to minimize their own taxes they would never have instituted a cap in the first place. And if they wanted a sneaky backdoor for themselves, why wait to include it in the law?  Why not make it an exception for federal employees only?
Snips for condensing.

Even more proof that it was a thought out plan rather than a loophole. When you institute something and later adjust it for your benefit then it is a conscious decision. You may just not agree. But it's right there. I'm not sure what else to say. They designed it the way it is. It is not a loophole but something that they put in place for high income individuals and couples to take advantage of tax free growth.

Also removing the cap for all federal employees opens up a can of worms. There is a small amount of tension between private and public especially in the higher echelons of our society. There would be screaming from the ivory towers of CNBC for blood if something like that happened. It is when the rich cry foul that shit gets done in this country. Obviously the method they used to open up Roth IRA's for themselves worked without causing any waves. Because it didn't affect anyone but those who make a great deal of money and in a positive way. As for why waiting, I don't know, they probably didn't even realize how good it was for themselves until someone pointed it out to them and then they decided to change it. Although there may be some smart people in the Senate and the House, they're still just people. Lots of them are going to not be experts on finance.

You're the one making the claim it's a loophole. Then you prove it. When did they make the inadvertent rule? What was the original intent of the rule if not a way for those ineligible for Roth IRA's to participate in them and in greater amounts than those that make less?

anisotropy

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Re: Flat Tax
« Reply #79 on: July 05, 2014, 10:54:23 AM »
grantmeaname,

I am not sure how to interpret the graph you posted, it seems to say the top 20% (excluding the 1%) pay 0.4% of the taxes? This number seem to be in direct contradiction with CBO's statement that "The households in the top 20 percent by income paid 92.9 percent of net income tax revenues taken in by the federal government in 2010."

http://cnsnews.com/news/article/terence-p-jeffrey/cbotop-40-paid-1062-income-taxes-bottom-40-paid-91-got-average-18950

http://www.cbo.gov/sites/default/files/cbofiles/attachments/44604-AverageTaxRates.pdf
(table 3, pdf pg. 17, report pg.13)

Yes "FICA" is flat rate in Canada with a cap, I assume it's the same in the States, not so good for the poor. But when you look at the final result the bottom 40% paid net negative taxes.

http://www.cnbc.com/id/101264757#.

When half of the nation is paying negative taxes and the other half of the nation is paying all the taxes I really don't understand how it's not fair for the poor.

Please explain? And please let me know what you think would be a fair tax scheme. Thanks.

I like how people just ignored hard numbers provided by EricP, Knaak and Huffy2k. For your convenience I will quote EricP's post with the numbers. The top 50% or even top 1% are paying more than their share (pay % > income %).
'Tax % > Income %' is a fact. "It would be fair if tax % equalled income %" is your opinion, and it's one that's emphatically not shared by everyone in the discussion. Other notions of fairness mentioned in these discussions (though possibly not in the specific thread, since we seem to start a new thread about the same topic every three weeks) include taxing income to minimize the overall hit to marginal utility, and taxing the well-off in proportion to the positive externalities the government provides them with. But if you're going to wander in and say "it's a fact that our system is unfairly harsh to the rich and I have a ratio that proves it" you don't really have much of a argument.

And you're using numbers that support your point rather than numbers that fairly render the economics of US taxation. Serious arguments include FICA and other federal taxes, which are far more regressive than our barely-progressive income tax system. Including all of these is more intellectually honest.
So what percentage does the top 20% pay with their ~two-thirds of the income?

About two thirds. Suddenly we don't really have progressive taxation at all!

shuffler

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Re: Flat Tax
« Reply #80 on: July 05, 2014, 01:15:47 PM »
I am not sure how to interpret the graph [grantmeaname] posted, it seems to say the top 20% (excluding the 1%) pay 0.4% of the taxes?
I had trouble with it too, for a while.
The dark blue in the upper-right quadrant is the "top 1%", which is also known in this graph as the 99-100th percentile.
From there, the chart decreases income in a counter-clockwise direction (the light-blue 81st-99th comes next) all the way until it reaches the red sliver labeled 1st-20th percentile, which are the lowest earners.  So it's the lowest 20% of earners who pay 0.4% of the taxes.

It may help to follow the dollar-values in parentheses (I think they're yearly income) as they decrease from the dark-blue.

ProfWinkie

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Re: Flat Tax
« Reply #81 on: July 05, 2014, 01:53:41 PM »
To bad this idea is doomed to fail. To many lawyers, CPA, Insurance companies, mutual funds (yes even vanguard), etc. a have a vested interest in current tax system.

grantmeaname

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Re: Flat Tax
« Reply #82 on: July 05, 2014, 05:55:59 PM »
And please let me know what you think would be a fair tax scheme. Thanks.
I just gave two other examples of criteria for a fair tax system.

anisotropy

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Re: Flat Tax
« Reply #83 on: July 05, 2014, 06:21:52 PM »
And please let me know what you think would be a fair tax scheme. Thanks.
I just gave two other examples of criteria for a fair tax system.

Yes you did. And I pointed out that per CBO report, which I assume is the same report you quoted, the net income tax (including FICA and other federal taxes, and all the governmental "transfers") from the bottom 40% wage earners was negative while the top 20% earners are paying over 90% of the net income tax.

Still think it's not fair for the poor?

If you have hard numbersabout how "taxing income to minimize the overall hit to marginal utility, and taxing the well-off in proportion to the positive externalities the government provides them with" would make the system better for all please share. :)

For these two systems to benefit the poor, the top 20% earners will have to pay even more than they do today (wealth creation is not zero-sum but wealth distribution is zero-sum), so effectively the top 20% provide for all while the rest of the country just be a burden?

grantmeaname

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Re: Flat Tax
« Reply #84 on: July 06, 2014, 01:37:08 AM »
For these two systems to benefit the poor, the top 20% earners will have to pay even more than they do today (wealth creation is not zero-sum but wealth distribution is zero-sum), so effectively the top 20% provide for all while the rest of the country just be a burden?

Per your CBO report you've got to include the top three quintiles before you get to 90% of the federal taxes paid (pg. 7 or pg. 13, depending on the definition of income you prefer). Maybe critical thinking just isn't the strong suit of those CNS news folks, who I'm sure are being totally intellectually honest. Whether through malice or ignorance, they're taking the individual income tax only and then reporting it as if it's inclusive of the other federal taxes.

Regardless, what the CBO numbers show is that the wealthiest fifth of Americans pay 68.8% of federal taxes with their portion of the income, which is a little more than 50%. I don't see how that's at all unreasonable. That's how progressive taxation is supposed to work, even if our system is barely progressive compared to the rest of the world and could be improved.

Quote
Still think it's not fair for the poor?
The top quintile earns 51.9% of the pretax income, while after they pay these oppressive taxes that you are so concerned about they have a piddly 48.1%. I'm really having trouble manufacturing any outrage about that.

libertarian4321

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Re: Flat Tax
« Reply #85 on: July 06, 2014, 02:50:54 AM »
It would mostly help the wealthy and the frugal, and mostly hurt the poor. So there's that.

Yep.  A flat tax disproportionally hurts the poor.  The stepped taxation stages are a much more fair way of approaching taxation (except of course for the fact that the rich pay the least proportionally).

How?

Every flat tax proposal I've ever seen has a floor which mean "the poor" pay ZERO dollars (which is what they pay now).

Our current tax system is a complete cluster f*ck.  Everyone feels like they are paying more than their fair share (even if they aren't) because the system is so damned twisted and convoluted that no one really has any idea what anyone else pays.

To say nothing of the untold Billions of dollars and the hours Americans waste every year trying to comply with our ridiculous income tax system.

I'm no fan of taxes, but I'd be a bit less pissed off about paying them if the system was SIMPLE AND FAIR, rather than the hopelessly convoluted system we have today.

I'm a pretty bright guy, with an advanced engineering degree and an MBA.  The damned tax code flummoxes me (frankly, I gave up trying to figure it out years ago- I just punch the numbers into tax software and hope to Hell they come out right).  I can only imagine how Joe Sixpack must feel when trying to fill out his damned tax forms.

Is the flat tax idea perfect?  Probably not.  But it can't possibly be any worse than the mess we have now...

libertarian4321

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Re: Flat Tax
« Reply #86 on: July 06, 2014, 02:57:33 AM »
You are correct in saying that nobody likes paying taxes. However, it's apparent that liberals love other people to pay taxes. ..

Please stop. That's not even remotely true. The biggest difference between liberals and conservatives today seems to be that conservatives don't think the government does anything good or worthwhile with taxpayer money. Liberals believe that government can be a force for good and there are some things we should collectively fund.

Such is the rhetoric.

But If you think this is true, just look at government spending under democratic vs republican presidents.

http://economistsview.typepad.com/.a/6a00d83451b33869e2017ee86db24e970d-800wi

Conservatives talk about hating big government, and then they grow it.

I would modify that.

REPUBLICANS, in general, love big government, just like Democrats.  They love to piss away our money.  Just like Democrats.

The only thing they disagree on is where to blow the money.  Dems love to blow your money on welfare programs and other failed wealth redistribution schemes, Reps love to blow money on a bloated military, farm subsidies, and the like.  Both Dems and Reps love to blow your money on the failed "War on Drugs."

True fiscal conservatives, though (probably 20% of Republicans and all Libertarians) really do want to cut back on the wasteful spending.  That includes cutting both Democratic and Republican pet spending programs.

GuitarStv

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Re: Flat Tax
« Reply #87 on: July 06, 2014, 09:40:47 AM »
It would mostly help the wealthy and the frugal, and mostly hurt the poor. So there's that.

Yep.  A flat tax disproportionally hurts the poor.  The stepped taxation stages are a much more fair way of approaching taxation (except of course for the fact that the rich pay the least proportionally).

How?

Every flat tax proposal I've ever seen has a floor which mean "the poor" pay ZERO dollars (which is what they pay now).

Our current tax system is a complete cluster f*ck.  Everyone feels like they are paying more than their fair share (even if they aren't) because the system is so damned twisted and convoluted that no one really has any idea what anyone else pays.

To say nothing of the untold Billions of dollars and the hours Americans waste every year trying to comply with our ridiculous income tax system.

I'm no fan of taxes, but I'd be a bit less pissed off about paying them if the system was SIMPLE AND FAIR, rather than the hopelessly convoluted system we have today.

I'm a pretty bright guy, with an advanced engineering degree and an MBA.  The damned tax code flummoxes me (frankly, I gave up trying to figure it out years ago- I just punch the numbers into tax software and hope to Hell they come out right).  I can only imagine how Joe Sixpack must feel when trying to fill out his damned tax forms.

Is the flat tax idea perfect?  Probably not.  But it can't possibly be any worse than the mess we have now...

With a flat tax everyone pays the same tax rate regardless of income.  What you're talking about is a tiered tax with two tiers.  Generally, tiered systems are less harmful to the poor.  That's why they're considered progressive rather than regressive.  Add in more tiers and you end up with a system that helps the lower and middle class as well as the poor.  It doesn't mean that the tax system has to be complex though.

anisotropy

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Re: Flat Tax
« Reply #88 on: July 06, 2014, 03:45:30 PM »
shuffler,

Thanks for pointing out to me how to read the graph, I get it now. lol I can be pretty dumb sometime, actually, most of the time :)


granmeaname,

Thanks for pointing out the discrepancies (actually I am not sure if they are discrepancies at all).

You are focusing on the "all federal taxes" tab (table 3), which shows everyone is paying something, or at least appear to be. While that's great news, we need to look at the net effect of these taxes. Box 1 clearly shows that the bottom 60% has higher after tax income than market income (pre-tax), while the top 40% has a lower after tax income. So while it takes "top three quintiles before you get to 90% of the federal taxes paid", the net effect is that the top 40% (mostly the top 20%) is paying for the benefits of the rest. After all, for certain groups to enjoy the magically higher after-tax income, some other groups must pay for it.

For example, the bottom 40% could pay 40% of all fed taxes for arguments sake, but if they ended up with higher after-tax income, they effectively have paid negative taxes, so no, the CNS website was not flat out lying.

I am OK with the way things are, knowing that I personally carry the burdens of others is a great ego booster ;). What am I not OK with? Well, just last week in beautiful Vancouver I gave some change to a guy on the street, he asked for more, fine I gave him a little more, still he asked for more. That's when I said "No", you get the idea.

I would love to see "flat tax" to be put in place just for fun. You can probably guess why, without our "barely progressive" taxes in place oh it'd be so funny to see the people currently paying negative taxes wake up and scream "NOT FAIR".

I understand you feel the current system is not fair, I am curious, how much % do you think the top 40% should pay? top 20%? top 1% ?

For these two systems to benefit the poor, the top 20% earners will have to pay even more than they do today (wealth creation is not zero-sum but wealth distribution is zero-sum), so effectively the top 20% provide for all while the rest of the country just be a burden?

Per your CBO report you've got to include the top three quintiles before you get to 90% of the federal taxes paid (pg. 7 or pg. 13, depending on the definition of income you prefer). Maybe critical thinking just isn't the strong suit of those CNS news folks, who I'm sure are being totally intellectually honest. Whether through malice or ignorance, they're taking the individual income tax only and then reporting it as if it's inclusive of the other federal taxes.

Regardless, what the CBO numbers show is that the wealthiest fifth of Americans pay 68.8% of federal taxes with their portion of the income, which is a little more than 50%. I don't see how that's at all unreasonable. That's how progressive taxation is supposed to work, even if our system is barely progressive compared to the rest of the world and could be improved.

Quote
Still think it's not fair for the poor?
The top quintile earns 51.9% of the pretax income, while after they pay these oppressive taxes that you are so concerned about they have a piddly 48.1%. I'm really having trouble manufacturing any outrage about that.

grantmeaname

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Re: Flat Tax
« Reply #89 on: July 06, 2014, 04:28:57 PM »
I would love to see "flat tax" to be put in place just for fun. You can probably guess why, without our "barely progressive" taxes in place oh it'd be so funny to see the people currently paying negative taxes wake up and scream "NOT FAIR".
They're not negative taxes - this is a subtle enough point that I was hung up on it for a while. The poor have a larger share of all of the income that's left after taxes are paid than they do of all of the income before taxes are paid. It's still less money (they're still paying positive taxes), but their part of the pie shrinks less than the whole pie shrinks.

But again, the "flat tax" is extremely regressive. I think that's a terrible thing for society - it's just an inefficient way to structure the tax system. (And you don't have to think about progressivity just in terms of the poor vs. the rich. It's also the middle class versus the rich, and the 99th percentile versus the 99.99th percentile. I'm not so much in this discussion for the class warfare side of it as what I see as the efficiency side of it.)

Quote
I understand you feel the current system is not fair, I am curious, how much % do you think the top 40% should pay? top 20%? top 1%?
Let me first disclaim that I would like a smaller government than we have and there are entire categories of things we spend money on that actively harm the welfare of the country (corn and milk subsidies, for example).

I wouldn't say our current system is egregiously unfair as far as vertical equity goes - I'd save that label for the fair tax, the flat tax, and variants thereof. I would like just a bit more progressivity than we have currently in the overall system, but I think what we have now is in the ballpark. (The leftmost column of table 2 is a good place to see how progressive it is, but don't forget that the quintiles are by number of people and not number of dollars.)

What the fair tax and similar proposals suggest is absolutely terrible, though, pushing the incidence of the tax on those least able to bear it (just like sin taxes, which everyone fully understands do not change behavior). They're incredibly regressive, and it's intellectually dishonest to suggest that a single even tax credit makes them otherwise. (As a side note, if it were up to me we'd have a Value Added Tax, which like the fair tax is pretty regressive, so we'd need a much more progressive individual income tax system to maintain even the current level of progressivity if it were introduced.)

Where I think our current system is egregiously unfair is horizontal equity - there's just none of it. Take two homeowners in the same economic circumstances but for differences in something like homeownership, dependents, or self-employment status, and they'll pay far different amounts of tax. That's horizontal inequity. I'm all for the oft-repeated Republican mantra of 'cut deductions, lower rates,' except that they only ever mean the second half of it when it comes time to write the bill.

To name just one example, the home mortgage interest deduction is worth more revenue than the entire corporate income tax, and the same people benefit from both of them - those in the top marginal bracket who own a lot of capital. What the hell is the point of that? We could cut a huge chunk out of the compliance costs and adverse incentives present in our tax system in one broad stroke, and we could pay for it with a single deduction! (I don't think there's a good economic reason that corporations need taxed, either - corporations are owned by people, so I think we should tax corporations at the dividend/capital gain level and nowhere else. But whatever your theoretical opinion, there's a powerful pragmatic argument to be made based on eliminating the incentives we currently give corporations to move abroad/manipulate transfer prices/buy companies for their tax assets/etc.)

Does that clarify my position a little more?

Grant 4 tax-dictator-for-a-day!

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Re: Flat Tax
« Reply #90 on: July 06, 2014, 04:33:28 PM »
If the flat tax helped the rich over the middle class or the poor, it would have been made the law of the land decades ago.


grantmeaname

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Re: Flat Tax
« Reply #91 on: July 06, 2014, 04:35:41 PM »
That's not a very convincing argument.

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Re: Flat Tax
« Reply #92 on: July 06, 2014, 05:07:22 PM »
Miles,

The conversation has shifted, but I still want to answer the questions you posed to me:

Quote
if we moved to a flat 15% tax tomorrow, what would prevent special interests on day two from carving out new tax credits, expenditures and giveaways for those with the most resources?

answer: Nothing.  Which is why I don't advocate a flat tax, but a consumption tax.  There's no need for special interest tax credits if there are no taxes.

Quote
And If you tax people based on consumption, then poor consume almost 100% of their income out of necessity, while the ultrarich consume less than 1% of income despite lavish spending habits. You've accomplished nothing more than a dramatic shift towards regressive taxation.

That's the point of a consumption tax.  If you want to live a Mustachian lifestyle you can pretty much avoid the Fairtax taxation system.  We don't fault people on this forum for being frugal. Why should a change in the tax code change that?  I think it is fair for everyone to receive the money they earn and then tax them on what they voluntarily choose to spend money on. 


Do I ever agree!

We had a provincial GST versus  Federal combined HST debate here a couple of years ago, and I dug a lot into how the taxes work. 

What I discovered is that a federal sales tax (Fair Tax) type system, instead of income taxes would be much fairer to poor and rich.   Why?

1.   I would contribute pro-rationally with the money I am spending.  Just like I do now with donations.  If I have money to spend on me, I set some aside to share it and to spend on more donations.  Likewise for taxes.

2.  Does not penalize me for being single income family, having a mortgage, families with child care, those who buy bus passes, those who buy standard groceries (standard groceries are already exempt), using a basic level of utilities. 

3.  I realized that two 65 yr plus seniors, on full CPP (canada pension plan, having each worked at least 10 years in canada) with OAS (Old age security top up), recieve $36k per year -- all of it is government or CPP money, none of it is personal savings.  If they also have a paid off house similar to mine, actually have MORE SPENDING INCOME than I do for my family of 4, net of income taxes, childcare and 30 yr mortgage costs.  Yet I am in the top decile of income earners, so I pay lots and lots of taxes, and they get subsidies.

4) Likewise, we have a lot of dual status Canadians living here with foreign investment income that is not taxed or at best, lightly taxed, in Canada.   They have a lot of money and buy lots of things.  I think people that have money to buy lots of shiny things and also live here and have parks, city services and healthcare, should contribute fully (fairly) for it too.   

5) Childcare, housing, fuel, and groceries are excluded today from these sales taxes.  Therefore low income persons have actually a very small % of their money left over to spend on "stuff" that is actually taxed, like gardeners, home improvements, clothing, restaurants.      But even for these, the plan was to provide an annual credit in an amount a little more than what they would like spend on increased sales tax.

And thanks, shuffler for the chart "how to read"  I was baffled at first too (trying to read it clockwise)




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Re: Flat Tax
« Reply #93 on: July 06, 2014, 05:20:03 PM »

They're not negative taxes - this is a subtle enough point that I was hung up on it for a while. The poor have a larger share of all of the income that's left after taxes are paid than they do of all of the income before taxes are paid. It's still less money (they're still paying positive taxes), but their part of the pie shrinks less than the whole pie shrinks.


I agree with the pie analogy but not entirely sure why you think they are not negative taxes. Box 1 shows pre-tax income of 8100 to after-tax income of 30800 for the lowest 20%, and 30700 to 43400 for the next. Am I missing something ?

Straight up "Flat tax" is extremely regressive in practice, there's no question about it. I don't support it, although it'd be pretty funny to see the effects if such thing was implemented.  The "horizontal inequity" is an interesting concept, I am no tax expert so I can't comment on that, even though I know quite a few people utilising all the deductions and credits available to them.

On the other hand, there are people who make over $200k on dividends alone and enjoy a "lower" tax rate than a "poor" engineer making 150k a year on salary. But hey, that's why we are all trying to be rich, right?

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Re: Flat Tax
« Reply #94 on: July 06, 2014, 05:58:53 PM »

You are correct in saying that nobody likes paying taxes. However, it's apparent that liberals love other people to pay taxes. ..

Please stop. That's not even remotely true. The biggest difference between liberals and conservatives today seems to be that conservatives don't think the government does anything good or worthwhile with taxpayer money. Liberals believe that government can be a force for good and there are some things we should collectively fund.

Such is the rhetoric.

But If you think this is true, just look at government spending under democratic vs republican presidents.

http://economistsview.typepad.com/.a/6a00d83451b33869e2017ee86db24e970d-800wi

Conservatives talk about hating big government, and then they grow it.

I would modify that.

REPUBLICANS, in general, love big government, just like Democrats.  They love to piss away our money.  Just like Democrats.

The only thing they disagree on is where to blow the money.  Dems love to blow your money on welfare programs and other failed wealth redistribution schemes, Reps love to blow money on a bloated military, farm subsidies, and the like.  Both Dems and Reps love to blow your money on the failed "War on Drugs."

True fiscal conservatives, though (probably 20% of Republicans and all Libertarians) really do want to cut back on the wasteful spending.  That includes cutting both Democratic and Republican pet spending programs.

Your take seems to imply that republicans and democrats spend the same amount on different priorities.

While this take may jibe with your own personal view of the world, it does not conform to reality.

The data clearly shows that republican presidents spend significantly more.

So if your goal is truly smaller government, (mine isn't) make sure to never vote republican.



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Re: Flat Tax
« Reply #95 on: July 06, 2014, 06:12:01 PM »

I would love to see "flat tax" to be put in place just for fun. You can probably guess why, without our "barely progressive" taxes in place oh it'd be so funny to see the people currently paying negative taxes wake up and scream "NOT FAIR".
They're not negative taxes - this is a subtle enough point that I was hung up on it for a while. The poor have a larger share of all of the income that's left after taxes are paid than they do of all of the income before taxes are paid. It's still less money (they're still paying positive taxes), but their part of the pie shrinks less than the whole pie shrinks.

But again, the "flat tax" is extremely regressive. I think that's a terrible thing for society - it's just an inefficient way to structure the tax system. (And you don't have to think about progressivity just in terms of the poor vs. the rich. It's also the middle class versus the rich, and the 99th percentile versus the 99.99th percentile. I'm not so much in this discussion for the class warfare side of it as what I see as the efficiency side of it.)

Quote
I understand you feel the current system is not fair, I am curious, how much % do you think the top 40% should pay? top 20%? top 1%?
Let me first disclaim that I would like a smaller government than we have and there are entire categories of things we spend money on that actively harm the welfare of the country (corn and milk subsidies, for example).

I wouldn't say our current system is egregiously unfair as far as vertical equity goes - I'd save that label for the fair tax, the flat tax, and variants thereof. I would like just a bit more progressivity than we have currently in the overall system, but I think what we have now is in the ballpark. (The leftmost column of table 2 is a good place to see how progressive it is, but don't forget that the quintiles are by number of people and not number of dollars.)

What the fair tax and similar proposals suggest is absolutely terrible, though, pushing the incidence of the tax on those least able to bear it (just like sin taxes, which everyone fully understands do not change behavior). They're incredibly regressive, and it's intellectually dishonest to suggest that a single even tax credit makes them otherwise. (As a side note, if it were up to me we'd have a Value Added Tax, which like the fair tax is pretty regressive, so we'd need a much more progressive individual income tax system to maintain even the current level of progressivity if it were introduced.)

Where I think our current system is egregiously unfair is horizontal equity - there's just none of it. Take two homeowners in the same economic circumstances but for differences in something like homeownership, dependents, or self-employment status, and they'll pay far different amounts of tax. That's horizontal inequity. I'm all for the oft-repeated Republican mantra of 'cut deductions, lower rates,' except that they only ever mean the second half of it when it comes time to write the bill.

To name just one example, the home mortgage interest deduction is worth more revenue than the entire corporate income tax, and the same people benefit from both of them - those in the top marginal bracket who own a lot of capital. What the hell is the point of that? We could cut a huge chunk out of the compliance costs and adverse incentives present in our tax system in one broad stroke, and we could pay for it with a single deduction! (I don't think there's a good economic reason that corporations need taxed, either - corporations are owned by people, so I think we should tax corporations at the dividend/capital gain level and nowhere else. But whatever your theoretical opinion, there's a powerful pragmatic argument to be made based on eliminating the incentives we currently give corporations to move abroad/manipulate transfer prices/buy companies for their tax assets/etc.)

Does that clarify my position a little more?

Grant 4 tax-dictator-for-a-day!

Completely agree with this (obviously.)

Once again this "fair tax" discussion. conflates 2 desires that have little to do with each other.

1.  The desire for a simpler tax system.

And

2.  The desire for a more regressive tax system.

If you want number 1, (which I personally do) get rid of deductions.

And if you want number 2, (which I personally don't ) then get rid of progressivity in the tax code. (Ie move to a flat income tax, or a consumption tax.)

The 2 desires are almost completely unrelated.

In any case, you have my vote for taxation despot, Grant.



grantmeaname

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Re: Flat Tax
« Reply #96 on: July 06, 2014, 11:53:45 PM »
I agree with the pie analogy but not entirely sure why you think they are not negative taxes. Box 1 shows pre-tax income of 8100 to after-tax income of 30800 for the lowest 20%, and 30700 to 43400 for the next. Am I missing something?
I was going of the table 2 value being positive for all combined taxes, though I suppose that doesn't count getting government benefits as getting negative taxes for columns other than the individual income tax.

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Flat Tax
« Reply #97 on: July 07, 2014, 12:05:28 AM »
Milesdividendmd -- I agree pretty much with everything you write. I say get rid of all deductions. Every last one of them. Then treat all income the same whether it is earned, dividend, or capital gains. This will significantly allow us to lower the tax rates.

Edit: This also means no deductions for 401ks, no IRAs as well, no 529s, no mortgage interest tax deduction, no child tax credit, etc. etc.

I was reading somewhere that tax expenditures exceed 1 trillion USD. This is larger than social security or Medicare or defense spending.
« Last Edit: July 07, 2014, 12:22:28 AM by rpr »

grantmeaname

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Re: Flat Tax
« Reply #98 on: July 07, 2014, 12:35:13 AM »
I strongly disagree that they all need to go. But I'd say we could definitely do with getting rid of most of them.

The savers' deductions are ones I'd definitely keep around.

rpr

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Re: Flat Tax
« Reply #99 on: July 07, 2014, 12:40:33 AM »
Why should there be saver's deductions? Again, I find that this is fundamentally unfair as some people have access to 401k while others don't. Why can't we just have a larger standard deduction? Again, if tax rates are lower, then there is not as much benefit to tax deferrals.